Lansner: Pricier mortgages no housing killer

Mortgage rates are up in recent weeks – and so is anxiety that this turn of economic events could push the housing market back into reverse gear.

Yet my review of the ups and downs of interest rates strongly suggests that those fears are largely unwarranted.

I pondered this economic puzzle with the aid of my trusty spreadsheet to learn what history says about the relationship between movements in financing costs and housing activity.

For this experiment, I tracked down four decades' worth of National Association of Realtor data on single-family home sales and median selling prices; the Federal Reserve's benchmark for conventional 30-year mortgage rates and Bureau of Labor Statistics national job growth, for good measure. I looked at the relationship between one-year moves in mortgage rates and how that related to changes in home sales and prices – plus hiring trends – in that year and the next one.

What did I learn?

Mortgage rates have risen in 15 years since 1973 – and in only six of those 15 rate-rise occurrences did U.S. home buying slump.

Now those rare home buying dips were doozies – remember the real estate pain of 1979-81 or 2005-06? – as rates rose. But in both of those cases, the Fed pushed up rates to temper economic ailments: overall inflation in the former and bubble-ish behavior in the latter.

Today, the Fed's made it clear they will keep rates cheap – and mortgages are still near record lows – as long as the economy needs a boost. And please note that my spreadsheet tells me that homes sales rose after nine of 15 occurrences of pricier mortgages.

What of prices?

Well, this also may surprise you. In the 15 years when mortgage rates were rising, the Realtors' U.S. median home price averaged 14 percent gains in total that year and the next one. Compare that to the 24 years when rates were declining. The average U.S. price movement was an 8 percent gain over two years as mortgages got cheaper.

Yes, home prices do better when rates are rising – almost twice as good!

How can this be? Why don't pricier mortgages kill off the housing market?

One explanation for the mortgage mystery lies with psychology. Brokers will frequently tell you that rising rates tend to get numerous prospective homebuyers who are "on the fence" to act. And history tells you that flocksof shoppers with mortgage-rate motivation may outweigh the number of shoppers who get priced out of the market due to pricier loans.

Another explanation – one frequently missing from the real estate debate – also is tied to shopper psyche: Hiring patterns. Better employment opportunities give house shoppers the confidence – and the cash – to buy.

History shows us that mortgage rates typically go up when the economy is on an upswing. Sometimes, it's simply extra demand for money. Also, the power that can drive financing costs, the Fed, either stops keeping rates low as a recovery takes root actively nudges rates up when the central bank fears the economy's overheated.

Ponder that in the 15 recent years with rising mortgage rates, my spreadsheet tells me that U.S. jobs averaged 3.4 percent growth in that year and the next. Employment was up only 2.6 percent when mortgage rates were falling.

So when you hear somebody bellyaching about mortgage rates, just tell them to chill: The U.S. economy's track record shows that the current rising mortgage rate environment isn't a death sentence to the housing recovery.

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